Fast-fashion powerhouse H&M has built its business on an ability to identify the biggest runway trends, and quickly produce its own versions to sell at a lower price. But for a company that's renowned for speed, there's one area in which some think H&M may be moving too fast — its rapidly expanding real estate footprint.
Already boasting more than 4,000 shops around the globe, the Swedish retailer has plans to boost its store count between 10 percent and 15 percent annually. That includes roughly 425 net new stores in 2016.
Yet at the same time, H&M's sales growth and profitability per square meter are slowing. And elsewhere in the industry, retailers who years ago expanded overzealously are now dialing back their store fleets, in an attempt to revive their own store productivity.
During the quarter ended in May, H&M's sales excluding value-added tax grew just 2 percent. That's despite it adding more than 400 stores from the prior-year period. It also marked a substantial slowdown from the previous year's growth, when sales rose 21 percent using that same metric.
Though currency swings have recently taken their toll, this type of disconnect is nothing new to Morgan Stanley analyst Geoff Ruddell. In a note to investors earlier this year, the veteran analyst said 2016 may be a tipping point for H&M, whose profit densities have been on the decline since 2007.
Based on Ruddell's analysis, H&M's 15 percent annual-square-footage expansion has allowed its operating profits to move higher — effectively concealing its slipping store productivity. But Ruddell argues this trend cannot go on forever, and this will likely be the year when H&M's profits start to contract.
Not everyone is concerned about H&M's expansion plans. Given the retailer's global footprint, multiple brands and experience operating international stores, Stifel analyst Richard Jaffe told CNBC he doesn't consider H&M's growth either "dangerous" or "risky."
"H&M is well-suited and pretty disciplined about [their] growth," Jaffe said. "This is not frivolous growth."